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The mirroring hypothesis predicts that organizational ties within a project, firm, or group of firms (e.g., communication, collocation, employment) will correspond to the technical patterns of dependency in the work being performed. A thorough understanding of the phenomenon is difficult to achieve because relevant work is scattered across multiple fields. This paper presents a unified picture of mirroring in terms of theory, evidence, and exceptions. First, we formally define mirroring and argue that it is an approach to technical problem solving that conserves scarce cognitive resources. We then review 142 empirical studies, divided by organizational form into (1) industry studies, (2) firm studies, and (3) studies of open collaborative projects. The industry and firm studies indicate that mirroring is a prevalent pattern but not universal. However, there is evidence of a mirroring “trap”: firms focused on the current technical architecture may fall victim to architectural innovations arising outside their boundaries. Thus in technologically dynamic industries, partial mirroring, where knowledge boundaries are drawn more broadly than operational boundaries, is likely to be a superior strategy. Firms can also strategically “break the mirror” in two ways: by implementing modular partitions within their own boundaries or by building relational contracts that support technical interdependency across their boundaries. Finally, in contrast to industry and firm studies, studies of open collaborative projects, most of which focused on software, were not supportive of the hypothesis. We argue that these contradictory results arise because digital technologies make possible new modes of coordination that enable groups to deviate from classical mirroring as seen within firms. This working paper includes Appendix A, which describes our detailed findings by category. Appendix B, a tabular summary of the 142 studies in our sample, is available on request from the authors.

There are many ways to exercise authority. Perrow (1986), in his review of March and Simon's Organizations (1958), offers a threefold classification of the ways authority can be exercised in organizations: (1) direct, "fully obtrusive" controls such as giving orders and direct monitoring; (2) bureaucratic controls such as defined specializations, roles, and hierarchy; and (3) "control of the cognitive premises underlying action." Valve ostentatiously makes little use of direct authority. It downplays bureaucracy, although in fact many bureaucratic controls are in place. Instead, the legal authority vested in the owners of the company (especially the majority shareholder, Gabe Newell) is used quite extensively to set the premises of action and thus unobtrusively channel employees' efforts and communication patterns into a highly productive configuration. The sustained high profits of the company, and its ability to attract and retain talented software developers, are testimony to the success of this organizational model. At the same time, contextual variables—in particular Valve's identity as a video game creator and the fact of a single majority shareholder—are also critical factors contributing to its success. As a result, even within the software industry, the range of companies for which this organizational model is appropriate is quite limited.

Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.